A Frustrating Trend In The Stock Market Continues To Make Fools Of The Bears

Meanwhile, earnings growth expectations, which are the most important drivers of stocks, continue to fall.

"Since the end of the fourth quarter (December 31), analysts have also reduced earnings growth expectations for Q1 2013 (to -0.04% from 2.4%) and Q2 2013 (to 5.1% from 6.5%)," wrote FactSet's John Butters in a note published on Friday.

The current negative Q1 earnings growth expectation compares to last week's expectation for modest growth.

When stocks go up while earnings come down, valuations are rising in a phenomenon called multiples expansion. In other words, stocks are getting more expensive.

And the stock market bears who based their theses on falling earnings are being made for fools.

Interestingly, today's stock market rally came in the wake of what was arguably a disappointing housing report.

So, what gives?

Last week as he wrote about his expectation for a near-term sell-off, JP Morgan's Tom Lee suggested that resilience in the face of bad news could be a sign of changing market mentality.

"We see the biggest challenge to our view as the possibility that equity markets are not negatively affected by bad news and continue to strengthen through 1H," he wrote "And this could be a result of a change in the market’s character. If investor confidence strengthens, there may be less volatility."

Perhaps we are witnessing a structural change in investor sentiment.

Anyways, here's the chart from Factset showing stocks rising as quarterly earnings estimates fall:

Here's a chart from Morgan Stanley's Adam Parker, which shows how full-year earnings growth expectations have been coming down. As you can tell from the chart title, Parker expects this downward trend to continue: